State's fiscal deficit to rise marginally to 3.3% in FY18: Ind-Ra

Market borrowings of the states will increase to Rs 3.7 lakh cr from the Rs 3.5 lakh cr in FY17

The states' fiscal deficit will rise only marginally to 3.3 per cent in financial year 2017-18 (FY18) from the expected 3.2 per cent in 2016-17 (FY17), domestic ratings agency India Ratings and Research (Ind-Ra) said on Monday.

"The aggregate fiscal deficit of Indian states is expected to increase marginally to 3.3 per cent of gross domestic product (GDP) in FY18 from the forecast of 3.2 per cent for FY17," it said in a note.

The aggregate states' GDP-to-debt ratio will also go up marginally to 24.3 per cent in FY18 from 24 per cent in FY17, it said.

Market borrowings of the states will increase to Rs 3,70,000 crore from the Rs 3,50,000 crore in the ongoing financial year, it said.

However, as a percentage of GDP, states' net market borrowings is likely to moderate to 2.2 per cent in FY18 from the forecast 2.3 per cent for FY17.

On the crucial indirect tax reform Goods and Services Tax, the agency said it expects an implementation by July 2017 and added that the proposed compensation of Rs 50,000 crore by the central government to state governments to cover revenue losses post tax implementation will be sufficient.

It said demand for petroleum products is expected to grow 9.5 per cent in FY18 and states with a higher proportion of revenue from petroleum products in own tax revenue will benefit from the increase in crude oil prices.

The aggregate capital expenditure-to-GDP ratio of states is expected to remain stable at 3.4 per cent in FY18, which is the same as in FY16 and FY17, it said.

It also added that the states will be making suitable changes to their finances after the Centre tables the N K Singh panel on Fiscal Responsibility and Budget Management, which allows for the fiscal deficit of the central government to be increased by up to 0.5 per cent of GDP.